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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the assessee against the order of the CIT(A)-01, Ahmedabad (‘CIT(A)’ in short), dated 23.03.2016 arising in the reassessment order dated 25.03.2013 passed by the Assessing Officer (AO) under s. 143(3) read with section 147 of the Income Tax Act, 1961 (the Act) concerning A.Y. 2005-06.
ITA No.1454/Ahd/2016 Bhavna Investment Pvt. Ltd. vs. ITO] A.Y. 2005-06 - 2 - 2. The grounds of appeal raised by the assessee are twofold; (i) challenging the legality of assessment of jurisdiction under section 147 of the Act and (ii) challenging action of the Assessing Officer (AO) in making certain additions on merits in pursuance of assessment of jurisdiction under section 147 of the Act.
When matter was called for hearing, the Ld. A R for the assessee at the outset challenged the action of the AO in usurping jurisdiction under section 147 of the Act wrongfully. The Ld. AR contended that the reasons recorded by the AO does not meet the pre-requisites for assumption of jurisdiction and therefore the notice issued pursuant to such recordings of reasons is bad in law. It was thus submitted that the consequent reassessment order is without authority of law. For this purpose, the Ld. AR adverted our attention to the reasons recorded under section 148(2) of the Act dated 26/03/2012 and contended that the bare reading of the reasons recorded would show that the AO based on certain information received from another AO has proposed to reopen the case for mere ‘verification’ of the concerns of investment and genuineness of the same. The Ld. AR thus submitted that it is ostensible from the reasons recorded that the AO did not form any firm ‘reasons to believe’ contemplated under section 147 of the Act towards escapement of income. The plain reading of the reasons provided would overtly show that the AO merely wanted to make enquiry to find out the correctness of the information so received from other AO. The Ld. AR accordingly submitted that a bona fide ‘belief’ towards escapement of income is clearly absent in the case. The Ld. AR accordingly submitted that the entire action of the AO is a complete non-starter and requires to be struck down. In this context, the Ld. AR adverted our attention to the judgment of the Hon’ble Gujarat High Court in Sunrise Education Trust vs. ITO (Exemption) [2018] 92 taxmann.com 74 (Gujarat) for the proposition that reassessment notice for mere verification or for fishing enquiry is
ITA No.1454/Ahd/2016 Bhavna Investment Pvt. Ltd. vs. ITO] A.Y. 2005-06 - 3 - not permissible in law notwithstanding that the return was not scrutinized before its acceptance originally. The Ld. AR also referred to another decision of Hon’ble Gujarat High Court in the case of Principal CIT vs. Krupesh Ghanshyambhai Thakkar vs. Deputy Commissioner of Income Tax [2017] 77 taxmann.com 293(Gujarat) and other judgment dated 07/05/2018 in which case also, the action of AO to reopen the assessment for brief verification of information received was not approved. The Ld. AR accordingly contended that the action of the AO for assessment of jurisdiction is not consistent with the mandate of law and therefore requires to be quashed.
The Ld. DR on the other hand relied upon the orders of the authorities below.
We have carefully considered the rival submissions. We have also perused the reasons recorded for issuance of notice under section 147 of the Act which is under challenge. It will be apt to reproduce reasons recorded hereunder:-
“The assessee company has filed its return of income for above assessment on 29/10/2005 declaring total income of Rs. 18,743/0. The return was processed u/s. 143(1) of the I.T. Act. Scrutiny assessment u/s 143(3) was also completed on 27/09/2007 accepting returned income. 2. Information has been received from the ITO,Wd.8(3),Ahmedabad that during the course of assessment proceedings in the case of Shantisuri Securities Pvt. Ltd. (SSPL) for A.Y. 2005-06, it was found that said company had received Rs. 4,06,95,000/- as share capital from various entities during previous year relevant to A.Y.2005-06. During the course of assessment proceeding, a detailed inquiry had also been carried out as a result of which it was revealed that the source companies were mere paper companies, having no real business or profession. The concerns had been merely floated and channelize the introduction of unaccounted cash into books of various benefit seekers. Further, the statement on oath of one of the director of Shantisuri Securities Pvt. Ltd. was also recorded during the assessment proceedings wherein he admitted to the effect that the parties who had allegedly contributed to the share capital of the company were either bogus or were entry givers only. In his statement, he further disclosed modus operandi of such entries giving by stating that when such entry seekers approached him to provide accommodation entries to them either in the form of share capital or as loans and advances for a fixed percentage of commission.
ITA No.1454/Ahd/2016 Bhavna Investment Pvt. Ltd. vs. ITO] A.Y. 2005-06 - 4 - Since he did not have the cash to provide the same, he accepted cash from these parties and handed over to the various parties who had deposited the cash in their own companies and in turn invested in his company as share capital. This money was forwarded by Shantisuri Securities Pvt. Ltd. (SSPL) as loans and advances to various parties who had given him cash in the first place. Through above modus operandi, Bhavana Investment Pvt. Ltd.- PAN- AAACB6298E- has made investment of Rs. 5,00,000/- as share capital of Shantisuri Securities Pvt. Ltd. in A.Y.2005-06. 3. On the basis of return of income so filed, it is found that the assessee company has declared said investment of Rs. 5,00,000/- made in acquiring shares of SSPL in its balance sheet. However, considering the deposition of the director of Shantisuri Securities Pvt. Ltd as discussed above, the source of investment of Rs. 5,00,000/- made in acquiring shares of said company requires to be verified in the case of Bhavna Investment Pvt. Ltd. for A.Y.2005-06 4. In view of the above , I have every reasons to believe that the income of the assessee company to the above extent of Rs. 5,00,000/- has escaped assessment and the case is therefore, required to be reopened U/s.147 of the IT. Act by way of issuing notice u/s 148 of the IT Act.” 6. A bare glance of the reasons recorded gives an unflinching impression that the powers exercised under section 147 was for detailed verification of the various aspects of the reference made to the AO herein by another AO. Thus, it is self evident that no definite formation of belief towards escapement of income was made at the time of issuance of notice by the AO. The AO has not even come to a prima facie conclusion towards escapement of income. What the AO intended is to make objective inquiry into the correctness of the information received from other wing of the department and find out if there is any escapement of income. The AO merely seeks to conclude that there is a case for investigation to unearth truth of alleged transactions. This is not the same thing as saying that there are ‘reasons to believe’ that some chargeable income has escaped assessment. Ostensibly, the AO at best has made out a case of probable escapement in distinction to a definite conclusion of escapement of income. Thus, the requirement of section 147 is clearly not fulfilled. Needless to say, provisions of section 147 which gives power to reopen a completed assessment can be invoked only when the conditions precedent for exercising the jurisdiction exists. Exercise of
ITA No.1454/Ahd/2016 Bhavna Investment Pvt. Ltd. vs. ITO] A.Y. 2005-06 - 5 - power under section 147 of the Act cannot be made on the basis of mere ipse dixit of revenue. The evidence or information from other AO is not a realization per se. Such information/evidence can possibly give birth to realization or belief of the AO as contemplated under section 147 of the Act. However, the independent formation of belief thereon is sine qua non for taking action under section 147 of the Act. It is well settled by plethora of judicial precedents that reopening is not permissible merely to seek investigation of facts collected without holding at least prima facie belief based on relevant material towards escapement of income. The conditions set out have not been met in the instant case. Hence, the notice issued under section 147 of the Act is not backed by authority of law and consequently bad in law.
The assessment under section 147 as a sequel to the illegal notice under section 148 is therefore null void and requires to be quashed.
In the result, the assessee succeeds on legal ground towards validity of jurisdiction under section 147 of the Act. Hence we do not consider it necessary to dwell upon the merits of the case.
In the result, appeal of the assessee is allowed. This Order pronounced in Open Court on 15/02/2019
Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 15/02/2019 Tanmay TRUE COPY आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A)
ITA No.1454/Ahd/2016 Bhavna Investment Pvt. Ltd. vs. ITO] A.Y. 2005-06 - 6 - 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।